International investors - five tax tales for 2016

29 January 2016

One of the themes of recent Governments has been a tightening of the rules for the taxation of individuals with international interests. We are likely to see this theme continue in 2016. In this update, we set out five of the key developments on this topic. 

Last chance to disclose offshore arrangements to HMRC

The Liechtenstein Disclosure Facility and British Crown Dependencies Facilities were closed early on 31 December 2015. The facilities were meant to run until April 2016 but their early closure was announced in the 2015 summer budget. These disclosure facilities provided an opportunity to disclose any overseas arrangements without the threat of prosecution and offered preferential terms. They aimed to encourage non-compliant tax payers to come forward before they were caught by HMRC.

A new and supposedly final disclosure facility is scheduled to run from April 2016 to September 2018, a year longer than originally anticipated. Interestingly, this means we are currently in a three month window in which no disclosure facility is available i.e. January, February and March 2016.  However those wishing to disclose to HMRC should not delay doing so as a voluntary disclosure will almost certainly offer better terms than if the issue is discovered by HMRC before it is disclosed.

The new facility is likely to offer less favourable terms than those offered by previous facilities, although the final terms have not yet been released.

With the automatic exchange of information under the OECD’s Common Reporting Standard soon to commence (the first exchange of information will be on 1 January 2017) and tougher penalties being introduced for offshore evasion, those with offshore interests may wish to take advantage of the new facility before it is too late.

Greater transparency for ownership of UK companies

The Government is introducing a central public register of ‘persons with significant control’ (‘PSC’) over all UK companies and LLPs with limited exceptions.

From April 2016, companies will be required to create and maintain a register of PSCs. The PSC Register must be available for public inspection and will also need to be sent to Companies House. The term PSC will include, but is not limited to, individuals who own or control more than 25% of a company’s shares or voting rights, or who otherwise exercise significant influence or control over the company or its board.  There will be strict civil and criminal penalties for non-compliance.

Importantly, if a trust meets any of the conditions (for example, if a trust owns more than 25% of a company’s shares) then the trustees or individuals who exercise ‘significant influence or control’ over the trust will require listing on the register. 

The introduction of the register comes as part of a global drive for greater corporate transparency and stems from the G8 Action Plan to tackle the misuse of companies and a crackdown on money laundering across the EU.

Individuals, including trustees, with an interest in UK companies or with complex structures which include UK companies should begin to consider what action they are required to take. They may also need to consider proposals for compulsory registration of non-UK companies in other jurisdictions.

One year grace period for returning non-doms

In his Summer Budget, the Chancellor announced that individuals with a UK domicile of origin who were born in the UK would be treated as domiciled in the UK for all tax purposes (i.e. income tax, capital gains tax and inheritance tax) for any year they are UK resident from April 2017. However, recently released draft legislation suggests that this will only apply for inheritance tax when the individual has also been UK resident for one of the two previous tax years i.e it will only apply from the second year of UK residence.  This change of policy has not been confirmed or denied by HMRC. The proposed change will be welcomed by those who feared very short visits to the UK may result in unduly harsh tax consequences. Nonetheless, many will feel it does not go far enough.

Inheritance tax to be paid on non-doms’ UK property

In its Summer Budget 2015, the Government announced that non-doms who own UK residential property, whether directly or indirectly, will be liable to inheritance tax (‘IHT’). The measure is due to apply from April 2017.

For individuals who are neither domiciled nor deemed domiciled in the UK, IHT is only charged on UK based assets. Therefore, non-doms who own UK residential property via an offshore company (or other vehicle) are able to avoid paying IHT in the UK – on the basis they own non-UK company shares and not the UK property itself. The new legislation will mean that any structure holding UK residential property will be ‘looked through’ and the ultimate beneficial owner will be liable to inheritance tax on the value of the UK property. The measure is likely to apply to residential property of any value and irrespective of whether it is occupied or let. The exact details of how the policy will work in practice are yet to be announced.

Following the introduction of the annual tax on enveloped dwellings, many individuals have continued to hold properties in offshore structures for the IHT savings. However, with this benefit coming to an end, 2016 may be the year where non-doms should consider restructuring their affairs.

Higher rates of SDLT on purchases of additional residential properties

From 1 April 2016, additional Stamp Duty Land Tax (“SDLT”) of 3% will be payable on the purchase of additional residential properties worth more than £40,000.  The Government has now published its consultation document which sets out how it plans to implement the measure. 

According to the consultation document, the higher rate will apply to transactions where at the end of the day of the transaction, any of the individual purchasers own two or more residential properties anywhere in the world. The word ‘transaction’ is likely to refer to completion but this is not completely clear. Married couples and civil partners will be treated as having only one main residence between them. There are limited exemptions including where the purchase is to replace a main residence.

The application of the additional rate to those who own residential properties abroad may add significant costs to the purchase of UK property for international individuals many of whom own or occupy a number of residential properties in different jurisdictions.  This is on top of recent tax changes affecting international owners of UK property including penal SDLT charges on purchases of high value residential property by corporate structures and capital gains tax for non-UK residents from 6 April 2015. Together with the expected ‘look through’ provisions for inheritance tax on UK property described above, this could spell bad news for the UK property market. 

Further information

Should you have any questions about the issues raised in this blog, please contact a member of our private client team.

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